<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1994
OR
/ /TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 1-9373
SUMMIT TAX EXEMPT BOND FUND, L.P.
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3323104
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
625 Madison Ave., New York, N.Y. 10022
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
N/A
- - --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
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Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
- - ---------------------------------------------------------------------------------------------------
ASSETS
Participating first mortgage bonds, net $ 101,612,456 $ 84,262,524
Assets held for sale, net 27,643,550 45,243,550
Temporary investments 2,326,233 1,500,760
Cash 132,655 200,227
Promissory notes receivable, net 7,104,044 7,243,567
Deferred bond selection fees, net 1,895,787 2,008,329
Interest receivable 874,575 890,798
Deferred financing fees, net 420,773 516,644
Other assets 29,757 15,306
------------- ------------
Total assets $ 142,039,830 $141,881,705
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Loan payable $ 13,680,866 $ 13,680,866
Deferred income 1,535,031 1,666,349
Due to affiliates 335,618 70,950
Accrued expenses 113,825 300,669
Accrued interest -- 84,821
------------- ------------
Total liabilities 15,665,340 15,803,655
------------- ------------
Contingencies
Partners' capital
Limited partners (7,906,234 BUC$ issued and outstanding) 126,706,431 126,415,919
General partners (331,941) (337,869)
------------- ------------
Total partners' capital 126,374,490 126,078,050
------------- ------------
Total liabilities and partners' capital $ 142,039,830 $141,881,705
------------- ------------
------------- ------------
- - ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
2
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SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------------------- -------------------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------
REVENUES
Interest income from participating first
mortgage bonds $5,044,893 $5,147,638 $$1,591,270 $1,637,250
Income from assets held for sale, net 1,916,202 1,755,237 557,032 761,524
Interest income from promissory notes 475,155 472,424 160,741 164,058
Interest income from temporary investments 27,090 19,151 10,077 6,335
---------- ---------- ---------- ----------
7,463,340 7,394,450 2,319,120 2,569,167
---------- ---------- ---------- ----------
EXPENSES
Interest expense 832,203 715,276 302,104 252,203
Management fees 503,907 503,907 167,969 167,969
General and administrative 242,035 305,519 84,162 83,596
Loan servicing fees 251,263 251,263 84,675 84,675
Amortization of deferred bond selection
fees 112,542 112,542 37,513 37,513
Amortization of deferred financing fees 95,871 90,545 31,957 36,841
Legal expense 46,500 285,000 16,500 95,000
---------- ---------- ---------- ----------
2,084,321 2,264,052 724,880 757,797
---------- ---------- ---------- ----------
Net income $5,379,019 $5,130,398 $1,594,240 $1,811,370
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
ALLOCATION OF NET INCOME
Limited partners $5,271,439 $5,027,790 $1,562,356 $1,775,143
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
General partners $ 107,580 $ 102,608 $ 31,884 $ 36,227
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per BUC $ .67 $ .64 $ .20 $ .23
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------
Partners' capital (deficit)--December 31, 1993 $126,415,919 $(337,869) $126,078,050
Net income 5,271,439 107,580 5,379,019
Distributions (4,980,927) (101,652) (5,082,579)
------------ --------- ------------
Partners' capital (deficit)--September 30, 1994 $126,706,431 $(331,941) $126,374,490
------------ --------- ------------
------------ --------- ------------
- - -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
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SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------
1994 1993
<S> <C> <C>
- - ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 5,368,581 $ 5,550,442
Cash received from assets held for sale, net 1,916,202 1,755,237
Interest paid (917,024) (715,276)
Fees and expenses paid (980,333) (921,562)
----------- -----------
Net cash provided by operating activities 5,387,426 5,668,841
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Income deferred upon assumption of FMB by new debtor 105,477 --
Net purchase of temporary investments (825,473) (285,150)
----------- -----------
Net cash used in investing activities (719,996) (285,150)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Funds borrowed -- 13,680,866
Repayment of loan payable -- (45,620)
Financing fees paid -- (639,147)
Repayment of loan from affiliate -- (3,000,000)
Principal payment received on FMB 347,577 --
Distributions paid (5,082,579) (5,082,579)
Loans made to affiliates -- (10,126,000)
----------- -----------
Net cash used in financing activities (4,735,002) (5,212,480)
----------- -----------
Net increase (decrease) in cash (67,572) 171,211
Cash at beginning of period 200,227 151,621
----------- -----------
Cash at end of period $ 132,655 $ 322,832
----------- -----------
----------- -----------
- - ----------------------------------------------------------------------------------------------------
SCHEDULE RECONCILING NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 5,379,019 $ 5,130,398
----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred bond selection fees 112,542 112,542
Amortization of deferred financing fees 95,871 90,545
Accretion of deferred income (97,272) (93,992)
Accretion of valuation allowance (97,509) (97,509)
Changes in:
Promissory notes receivable 139,523 122,597
Interest receivable 16,223 102,732
Interest payable (84,821) --
Other assets (14,451) 132,566
Deferred income (139,523) (122,597)
Due to affiliates 264,668 191,618
Accrued expenses (186,844) 99,941
----------- -----------
Total adjustments 8,407 538,443
----------- -----------
Net cash provided by operating activities $ 5,387,426 $ 5,668,841
----------- -----------
----------- -----------
- - ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF INVESTING ACTIVITIES
The Partnership transferred $17,600,000 from assets held for sale to participating first mortgage
bonds (``FMBs'') during the three month period ended June 30, 1994. See Note D for further
information.
- - ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
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SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of Summit Tax Exempt Bond Fund, L.P. (the ``Partnership'') as of
September 30, 1994, the results of its operations for the nine and three months
ended September 30, 1994 and 1993 and its cash flows for the nine months ended
September 30, 1994 and 1993. However, the operating results for the interim
periods may not be indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1993.
Certain balances for the prior period have been reclassified to conform with
the current financial statement presentation.
B. Related Parties
The General Partners and their affiliates perform services for the
Partnership which include but are not limited to: accounting and financial
management; registrar, transfer and assignment functions; asset management;
investor communications; printing and other administrative services. The General
Partners and their affiliates receive reimbursements for costs incurred in
connection with these services, the amount of which is limited by the provisions
of the Partnership Agreement. The costs and expenses were:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
--------------------- ---------------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------
Prudential-Bache Properties, Inc. (``PBP'') and
affiliates:
General and administrative $ 68,984 $ 85,404 $ 24,015 $ 29,029
Management fee 251,954 251,954 83,985 83,985
-------- -------- -------- --------
320,938 337,358 108,000 113,014
-------- -------- -------- --------
Related Tax Exempt Bond Associates, Inc.
(the ``Related General Partner'') and affiliates:
Loan servicing fees 251,263 251,263 84,675 84,675
General and administrative 20,694 33,560 7,291 8,090
Management fee 251,953 251,953 83,984 83,984
-------- -------- -------- --------
523,910 536,776 175,950 176,749
-------- -------- -------- --------
$844,848 $874,134 $283,950 $289,763
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The General Partners are paid, in aggregate, an annual management fee equal
to .5% of the total invested assets (which equals the original face amount of
the total FMBs).
An affiliate of the Related General Partner receives loan servicing fees in
the amount of .25% per annum of the principal amount outstanding on mortgage
loans serviced by the affiliate.
A division of Prudential Securities Incorporated (``PSI''), an affiliate of
PBP, receives a fee for the purchase, sale, and safekeeping of the Partnership's
temporary investments. This account is maintained in accordance with the
Partnership Agreement.
5
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<PAGE>
Several executive officers and directors of the Related General Partner own
less than 1% of the outstanding BUC$.
C. Participating First Mortgage Bonds
As a result of the failure to pay 1992 and 1993 real estate taxes, the
Partnership initiated steps to enforce its rights and remedies on the Cypress
Run property in July 1994. These remedies include acceleration of the loan and a
$350,000 draw on an irrevocable letter of credit issued on behalf of the owner
of Cypress Run as security relating to obligations under the Rental Performance
Agreement. In response, on July 15, 1994, the owner of the property filed for
bankruptcy under Chapter 11 of the United States Bankruptcy Code. At this time,
the owner continues to operate the property as a Debtor-in-possession. The
bankruptcy filing operates as a stay against the enforcement of the
Partnership's remedies including foreclosure. At the initial hearing, the court
consented, among other things, to allow the Partnership to receive the monthly
net cash flow generated by the property as its debt service payments for at
least the initial 120 days of the proceedings. Pursuant to the terms of the bond
documents, approximately $348,000 of the proceeds received from the draw on the
letter of credit has been recorded as a reduction of the FMB, with the balance
applied as interest.
In June 1992, the Partnership made a second mortgage loan to the owner of the
property underlying the Cypress Run FMB for approximately $320,000 for the
payment of past due property taxes. This loan requires monthly interest only
payments at a rate of 8.5% per annum with the principal due on July 1, 1994. Due
to past due 1993 and 1992 property taxes, an allowance for possible loss was
established for this loan during 1993. Interest payments on the loan as well as
the FMB were current through June 1994; however as of November 1994, the loan
remains outstanding and the Partnership has notified the borrower of the
default.
On November 10, 1994, an Order Modifying Stay together with a Settlement
Stipulation was entered by the Court which grants the Partnership relief from
the Automatic Stay. This order becomes effective on March 31, 1995 unless a sale
of the property, subject to the Partnership's approval, is closed beforehand. If
a sale is not consumated, the title of the property will be transferred to the
Partnership or its designee in accordance with the terms set forth in the
Settlement Stipulation. Pursuant to the terms of the Settlement Stipulation,
until such sale occurs or the deed is transferred on March 31, 1995, the
Partnerhship shall continue to receive the monthly net cash flow generated by
the property as payment toward debt service.
D. Assets Held for Sale
Assets held for sale and the related income thereon are as follows:
<TABLE>
<CAPTION>
Net cash received Net cash received
for the nine for the three
months ended months ended
Carrying Face September 30, September 30,
Call Maturity Value Amount ------------------------ --------------------
Date Date of FMB of FMB 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------
Cedar Creek, Dec. 1998 Dec. 2006 $ 7,798,550 $ 8,100,000 $ 458,590 $ 354,039 $162,000 $113,953
McKinney, Tx
High Pointe June 1998 June 2006 7,545,000 8,900,000 405,000 237,175 135,000 120,000
Club,
Harrisburg, Pa
The Mansion, May 1998 May 2010 -- 19,450,000 318,826 955,211 (8,754) 318,759
Independence,
Mo*
Greenway Manor Oct. 1998 Sept. 2006 12,300,000 12,850,000 733,786 208,812 268,786 208,812
St. Louis,
Mo**
------------ ----------- ---------- ---------- -------- --------
$27,643,550 $49,300,000 $1,916,202 $1,755,237 $557,032 $761,524
------------ ----------- ---------- ---------- -------- --------
------------ ----------- ---------- ---------- -------- --------
</TABLE>
* Reinstated as an FMB as of April 1, 1994. As such, the cash received for the
nine months ended September 30, 1994 reflects cash flow only through March 31,
1994. Subsequent cash flow was recorded as interest income from FMBs.
** On June 30, 1993, the original owner of the property transferred its
ownership interest to an affiliate of the Related General Partner who did not
make an equity investment and the FMB was reclassified as an asset held for
sale. Prior to this classification, cash received was recorded as interest
income from FMBs.
The original owners of several of the underlying properties and obligors of
the FMBs have been replaced with entities affiliated with the Related General
Partner who have not made equity investments. These
6
<PAGE>
<PAGE>
entities have assumed the day-to-day responsibilities and obligations of the
underlying properties. Buyers are being sought who would make equity investments
in the underlying properties and assume the nonrecourse obligations for the
FMBs. Although these properties are not producing sufficient cash flow to fully
service the debt, the Partnership has no present intention to declare a default
on these FMBs.
On April 1, 1994, Mansion Apartment Project Investors, Inc., an affiliate of
the Related General Partner who replaced the original developer of The Mansion
property, sold the ownership interest in the property to an unrelated third
party for $700,000 in cash and the assumption of the obligations under the
Partnership's $19,450,000 FMB as well as a $400,000 second mortgage note to a
lender affiliated with the Related General Partner taken by assignment from the
seller. Notwithstanding the assumption of the FMB, the General Partners have
agreed to forbear on the Partnership's rights and remedies in declaring an
interest payment default under the FMB loan documents provided the new borrower
makes minimum monthly interest payments to the Partnership equal to
approximately $81,000 per month (5% per annum) together with payments to the
replacement reserve escrow account of approximately $4,500 per month and
complies with all other covenants and obligations of the borrower under the FMB
documents. The forbearance agreement orginally expired on September 30, 1994 but
has been extended to November 30, 1994.
As a result of the cash equity investment, The Mansion (which had previously
been classified in the financial statements as an asset held for sale) was
reinstated as an FMB. The net cash proceeds from the sale of approximately
$105,000 (net of a $400,000 escrow for certain repairs, a $50,000 second
mortgage note principal payment, and closing costs), paid to the Partnership to
reduce accrued and unpaid interest, was recorded by the Partnership as deferred
income and is being accreted as interest income from first mortgage bonds over
the remaining life of The Mansion FMB. The balance of the deferred income
relating to The Mansion FMB was approximately $102,000 at September 30, 1994.
All other accrued and unpaid interest on The Mansion FMB which previously had
been reserved was forgiven.
In 1992, the Partnership loaned approximately $220,000, in the aggregate, to
The Mansion and Cedar Creek properties to enable them to pay property taxes. The
loans were self-amortizing over two years with interest at 8.5% per annum
beginning in June 1992. These loans were recorded in operating results as a
reduction in income from assets held for sale in 1992 because the FMBs were
paying interest on a cash flow basis. Subsequent principal payments relating to
these loans were recorded as income from assets held for sale. These loans were
fully amortized as of the second quarter of 1994.
E. Contingencies
On or about October 18, 1993, a putative class action, captioned Kinnes et
al. v. Prudential Securities Group Inc. et al. (93 Civ. 654), was filed in the
United States District Court for the District of Arizona, purportedly on behalf
of investors in the Partnership against the Partnership, PBP, Prudential
Securities Incorporated and a number of other defendants. On or about November
16, 1993, a putative class action captioned Connelly, et al. v. Prudential-Bache
Securities Inc. et al. (93 Civ. 713), was filed in the United States District
Court for the District of Arizona, purportedly on behalf of investors in the
Partnership against the Partnership, PBP, Prudential Securities Incorporated and
a number of other defendants. On or about January 3, 1992, a putative class
action, captioned Levine v. Prudential-Bache Properties Inc. et al. (92 Civ.
52), was filed in the United States District Court for the Northern District of
Illinois purportedly on behalf of investors in the Partnership against the
General Partners, Prudential Securities Incorporated and a number of other
defendants. Subsequently the Related General Partner exited the Levine
litigation by way of settlement. On April 14, 1994, the Judicial Panel on
Multidistrict Litigation (the ``Panel'') deferred transfer of the Levine case to
the Southern District of New York (discussed more fully below) until after the
Illinois court decided a pending motion to dismiss the complaint. On June 3,
1994, that court granted the motion of PBP and Prudential Securities
Incorporated and dismissed the first amended complaint without prejudice. On
June 30, 1994, plaintiffs filed a second amended complaint. By order dated July
13, 1994, the Panel unconditionally transferred the Levine case for inclusion in
the consolidated proceedings in the Southern District of New York described
below.
By its April 14, 1994 order, the Panel transferred the Kinnes case, and by
order dated May 4, 1994, the Connelly case, together with a number of other
actions, on each occasion not involving the Partnership, to a single judge of
the United States District Court for the Southern District of New York and
consolidated them under the caption In re Prudential Securities Incorporated
Limited Partnership Litigation (MDL Docket No. 1005). On June 8, 1994,
plaintiffs in the transferred cases filed a complaint that consolidated the
previously
7
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<PAGE>
filed complaints and named as defendants, among others, Prudential Securities
Incorporated, certain of its present and former employees and the General
Partners. The Partnership is not named a defendant in the consolidated
complaint, but the name of the Partnership is listed as being among the limited
partnerships at issue in the case. The consolidated complaint alleges violations
of the federal Racketeer Influenced and Corrupt Organizations Act (``RICO''),
fraud, negligent misrepresentation, breach of fiduciary duties, breach of
third-party beneficiary contracts, breach of implied covenants and violations of
New Jersey statutes in connection with the marketing and sales of limited
partnership interests. Plaintiffs request relief in the nature of: rescission of
the purchase of securities and recovery of all consideration and expenses in
connection therewith, as well as compensation for lost use of money invested,
less cash distributions; compensatory damages; consequential damages; treble
damages for defendants' RICO violations (both federal and New Jersey); general
damages for all injuries resulting from negligence, fraud, breaches of contract,
and breaches of duty in an amount to be determined at trial; disgorgement and
restitution of all earnings, profits, benefits and compensation received by
defendants as a result of their unlawful acts; costs and disbursements of the
action; reasonable attorneys' fees; and such other and further relief as the
court deems just and proper.
A derivative action entitled Litman et al. v. Prudential-Bache Properties,
Inc. et al. (No. 12137) was filed in Delaware Chancery Court, against the
General Partners and the parent company of PBP. Plaintiffs are individual
investors who purchased Partnership interests. Plaintiffs' initial complaint,
which was filed as a putative class action alleging breach of fiduciary duty,
was dismissed as legally insufficient. On April 30, 1992, plaintiffs filed an
amended complaint.
The amended complaint, which was solely a derivative action brought on behalf
of the Partnership, alleges that the defendants breached their fiduciary duties
in managing the affairs of the Partnership. Plaintiffs seek an indeterminate
amount of damages as well as attorneys' fees and costs. On June 5, 1992,
defendants filed a motion to dismiss the amended complaint in its entirety on
several grounds, including statute of limitations and failure to state a claim.
On January 4, 1993, defendants' motion was granted, and the amended complaint
was dismissed without leave to replead.
On February 2, 1993, plaintiffs filed a notice of appeal. On February 16,
1993, defendants filed a cross-appeal which appealed the court's failure to
dismiss plaintiffs' claims on statute of limitations grounds. After hearing oral
argument, the Delaware Supreme Court on November 18, 1993 remanded the action to
the Chancery Court for the limited purpose of determining whether plaintiffs'
claims were time-barred. On January 14, 1994, the Chancery Court concluded that
they were. After hearing all arguments, the Delaware Supreme Court on April 21,
1994 affirmed the decision of the Chancery Court dismissing the action for the
reasons set forth in the Chancery Court memorandum opinion of January 14, 1994.
On March 6, 1991, a derivative action entitled Virginia First Savings Bank
F.S.B., et al. v. Tax Exempt Bond Associates, Inc., et al., (No. L91-726) was
filed in Virginia Circuit Court against the General Partners and others.
Plaintiffs are one named and other unknown individual investors who are
purportedly suing on behalf of the Partnership. Defendants include, among
others, the Partnership and its General Partners. The complaint alleges breach
of fiduciary duty. Plaintiffs seek an indeterminate amount of damages.
Defendants have moved to dismiss the complaint on the grounds that (i)
plaintiffs are precluded from bringing the action by a previous decision; (ii)
plaintiffs failed to adequately plead a valid derivative claim and that (iii)
the court lacks jurisdiction over certain defendants.
The General Partners and Prudential Securities Incorporated believe they have
meritorious defenses to the complaints and intend to vigorously defend these
actions. Pursuant to the terms of the Partnership Agreement, the General
Partners may be entitled to indemnification for any loss suffered as a result of
these actions including their attorneys' fees.
PBP is also named as a defendant, together with other parties, in pending
legal proceedings involving other limited partnerships. Although a number of
cases have been resolved, others are still pending. PBP intends to defend itself
vigorously against such actions.
F. Subsequent Events
In November 1994, a distribution of approximately $1,660,000 and $34,000 was
paid to the limited partners and General Partners, respectively, for the quarter
ended September 30, 1994.
8
<PAGE>
<PAGE>
SUMMIT TAX EXEMPT BOND FUND, L.P.
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Summit Tax Exempt Bond Fund, L.P. (the ``Partnership'') has invested in
eleven tax-exempt participating first mortgage bonds (``FMBs'') issued by
various state or local governments or their agencies or authorities. The FMBs
are secured by participating first mortgage loans on multi-family residential
apartment projects.
Interest payments from FMBs are anticipated to provide sufficient liquidity
to meet the operating expenditures of the Partnership in future years and to
fund distributions.
The Partnership's loan payable has a variable interest rate; therefore,
future levels of interest expense will fluctuate in correlation to movements in
the 30-day commercial paper interest rate.
The third quarter distribution of approximately $1,660,000 ($.21 per BUC) was
paid to limited partners in November 1994 from cash flow from operations. The
Partnership anticipates funding future cash distributions from cash flow from
operations.
In July 1994, the owner of the Cypress Run property filed for bankruptcy
under Chapter 11 of the United States Bankruptcy Code. Monthly interest income
to the Partnership from the Cypress Run FMB will be reduced during these
proceedings. However, the net cash flow from the Cypress Run property, together
with the proceeds of a letter of credit, was sufficient such that the
Partnership's net cash flow was not negatively impacted in the third quarter of
1994. Barring any other reduction of Partnership income or increase in
Partnership expenses, cash flow is not expected to be negatively
impacted by Cypress Run in the fourth quarter of 1994.
Results of Operations
Net income increased by approximately $249,000 for the nine months ended
September 30, 1994 but decreased by approximately $217,000 for the three months
ended September 30, 1994 as compared to the corresponding periods in 1993 for
the reasons discussed below.
Interest income from FMBs decreased by approximately $103,000 and $46,000 for
the nine and three months ended September 30, 1994, respectively, as compared to
the corresponding periods in 1993. These decreases primarily resulted from the
Cypress Run bankruptcy (see Note C to the financial statements), the
classification of Greenway Manor interest as income from assets held for sale
for the nine months ended September 30, 1994 and a decrease in interest received
from the North Glen FMB due to a modification to the forbearance agreement with
the property's owner in 1993. These decreases were offset, in part, by the
classification of interest received from The Mansion property as interest income
from FMBs subsequent to April 1, 1994 (see Note D to the financial statements),
and increased interest received from the Thomas Lake and Sunset Terrace FMBs.
Income received from FMBs that are currently classified as assets held for
sale (see Note D to the financial statements) increased by approximately
$161,000 for the nine months ended September 30, 1994 but decreased by
approximately $204,000 for the three months ended September 30, 1994 as compared
to the corresponding periods in 1993. These fluctuations are primarily due to
the classification of interest received from the Greenway Manor property as
income from assets held for sale in 1994 and increased cash flow received from
the High Pointe Club and Cedar Creek properties partially offset by the
classification of interest received from The Mansion property as interest income
from participating first mortgage bonds subsequent to the sale of the property
(see Note D to the financial statements) effective April 1, 1994.
Interest expense increased by approximately $117,000 and $50,000 for the nine
and three months ended September 30, 1994, respectively, as compared to the
corresponding periods in 1993 due primarily to an increase in the 30-day
commercial paper interest rate.
General and administrative expenses decreased by approximately $63,000 for
the nine months ended September 30, 1994 as compared to the corresponding
periods in 1993 primarily due to the timing of certain expenses in the
respective years and a general decrease in the costs associated with the
administration of the Partnership.
9
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<PAGE>
Legal expense decreased by approximately $239,000 and $79,000 for the nine
and three months ended September 30, 1994, respectively, as compared to the
corresponding periods in 1993 primarily because of non-recurring costs
associated with the Greenway foreclosure in 1993 and lower legal costs related
to the Levine litigation described in Note E to the financial statements.
Property Information
The following table lists the Partnership's FMBs with occupancy rates of the
underlying properties as of October 30, 1994:
<TABLE>
<CAPTION>
Face
Amount of Stated
Property Location FMB Occupancy Interest Rate(A)
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------
The Mansion Independence, Mo $ 19,450,000 98.7% 8.50%(E)
Martin's Creek Summerville, SC 7,300,000 99.5 7.00%(B)
East Ridge Mt. Pleasant, SC 8,700,000 98.5 7.00%(B)
High Pointe Club Harrisburg, Pa 8,900,000 98.7 8.50%(C)
Cypress Run Tampa, Fl 15,402,428 96.7 8.50%(D)
Thomas Lake Eagan, Mn 12,975,000 99.5 8.50%(A)
North Glen Atlanta, Ga 12,400,000 97.1 8.50%(A)
Greenway Manor St. Louis, Mo 12,850,000 100.0 8.50%(C)
Clarendon Hills Hayward, Ca 17,600,000 97.5 5.52%(A)
Cedar Creek McKinney, Tx 8,100,000 99.2 8.50%(C)
Sunset Terrace Lancaster, Ca 10,350,000 94.0 8.00%(A)
------------
$134,027,428
------------
------------
- - -----------------------------------------------------------------------------------------------
(A) See below and on the following pages for discussion of rates paid.
(B) As discussed on the following page, the stated rate on the restructured FMBs will increase
from 6.0% to 8.25% over the remaining terms of the FMB.
(C) The rate paid is the current cash flow from the property. See Note D to the financial
statements.
(D) As further discussed on page 11, the owner of the property underlying the FMB has filed for
bankruptcy.
(E) See Note D to the financial statements and the following page.
</TABLE>
Clarendon Hills, Hayward, California
On May 31, 1992, the sale of the Clarendon Hills property to an unrelated
third party was closed. Net proceeds made available to the Partnership were
approximately $1,441,000 and were recorded as deferred income. A $6,600,000
promissory note to Clarendon Hills Investors Inc. issued at the time of the sale
of the property was assigned to the Partnership. This promissory note requires
monthly interest payments of 8.0% per annum with the principal due on December
31, 2003. Beginning June 1, 1992, debt service payments relating to the FMB
commenced at a rate of 5.52% pursuant to the terms of the sale and modification
of the FMB. Pursuant to the terms of the sale, beginning with the November 1993
payment and through the August 1994 payment, the debt service payments were
reduced by $94,000 (50% of the property tax increase resulting solely from the
sale of the property). Payments on the FMB and the note are current.
High Pointe Club, Harrisburg, Pennsylvania
In 1988, the original owner of the underlying property and obligor of the FMB
was replaced by an affiliate of the Related General Partner who did not make an
equity investment. Additional financing for construction cost overruns was
obtained through a $3,250,000 first mortgage bond and a pro rata share
($3,180,000) of a $10,000,000 loan obtained in 1990 which was refinanced by the
Partnership in 1993. The Partnership received debt service payments on the FMB
at a pay rate of 6.15% and 3.6% per annum for the nine months ended September
30, 1994 and 1993, respectively. Although this property is still not producing
sufficient cash flow to fully service the debt, the Partnership has no present
intention to declare default on this FMB.
10
<PAGE>
<PAGE>
In November 1989, a $600,000 settlement was reached between the previous
developer of High Pointe Club Apartments (the ``Property'') and USF&G, the
construction performance bonding company for the Property. Prior to this
agreement, the previous developer agreed to place the settlement proceeds in
escrow later to be shared with the subsequent developer (``Greenhill Project
Investors, Inc.'') or its successors and assigns pursuant to an arbitration
proceeding.
On April 23, 1993, the previous developer agreed to release the escrowed
funds to RHA Inv., Inc. (``RHA''), the successor to Greenhill Project Investors,
Inc. RHA continues to have certain obligations to the Partnership, among others,
for the payment of accrued and unpaid interest as well as the repayment of
certain loans guaranteed by the Partnership. As a result, the General Partners
of the Partnership and RHA are negotiating which of RHA's obligations will be
satisfied by proceeds received from escrow. The Partnership's claim on the
escrowed funds is not recorded in the accompanying financial statements.
The Mansion, Independence, Missouri
In 1989, the original owner of the underlying property and obligor of the FMB
was replaced by Mansion Apartment Project Investors, Inc. (``MAPI''), an
affiliate of the Related General Partner who did not make an equity investment.
On April 1, 1994, MAPI sold its ownership interest in The Mansion to an
unrelated third party. See Note D to the financial statements for further
information.
Cedar Creek, McKinney, Texas
In 1988, the original owner of the underlying property and obligor of the FMB
was replaced by an affiliate of the Related General Partner who did not make an
equity investment. For the nine months ended September 30, 1994 and 1993, the
property made debt service payments at an annualized pay rate of approximately
8.0% and 5.8%, respectively. Although this property is not producing sufficient
cash flow to fully service the debt, the Partnership has no present intention to
declare default on this FMB. All previously past due and unpaid property taxes
have been paid.
East Ridge and Martin's Creek, South Carolina
The terms of the East Ridge and Martin's Creek FMBs (carrying value
$14,700,000, including valuation allowance of $1,300,000) were modified in 1990
when the equity interests in those properties and the related obligations of the
FMBs were sold by an affiliate of the Related General Partner to a third party
borrower. As part of this transaction, the minimum pay rates on the FMBs
increase in annual increments from 6.0% in 1990 to 8.25% in 1997. The difference
between the rate paid and the original stated rate is payable out of available
future cash flow or, ultimately, from sales or refinancing proceeds. During the
nine months ended September 30, 1994, the Partnership received 6.97% and 7.45%
from the East Ridge and Martin's Creek properties, respectively. The minimum
scheduled pay rate was 6.75% through February 28, 1994 and increased to 7.0% on
March 1, 1994. Additionally, in 1990, the Partnership received $950,000 in 13%
second mortgage promissory notes calling for monthly interest and principal
payments through December 1996. Payments on these notes, which are partially
secured by letters of credit, are current through September 30, 1994.
Cypress Run, Tampa, Florida
As a result of the failure to pay 1992 and 1993 real estate taxes, the
Partnership initiated steps to enforce its rights and remedies on the Cypress
Run property in July 1994. These remedies include acceleration of the loan (as
described below) and a $350,000 draw on an irrevocable letter of credit issued
on behalf of the owner of Cypress Run as security relating to obligations under
the Rental Performance Agreement. In response, on July 15, 1994, the owner of
the propert filed for bankruptcy under Chapter 11 of the United States
Bankruptcy Code. At this time, the owner continues to operate the property as a
Debtor-in-possession. The bankruptcy filing operates as a stay against the
enforcement of the Partnership remedies including foreclosure. At the initial
hearing, the court consented, among other things, to allow the Partnership to
receive the monthly net cash flow generated by the property as its debt service
payments for at least the initial 120 days of the proceedings. Pursuant to the
terms of the bond documents, approximately $348,000 of the proceeds received
from the draw on the letter of credit have been recorded as a reduction of the
FMB, with the balance applied as interest.
In June 1992, the Partnership made a second mortgage loan to the owner of the
property underlying the FMB for approximately $320,000 for the payment of past
due property taxes. This loan requires monthly
11
<PAGE>
<PAGE>
interest only payments at a rate of 8.5% per annum with the principal due on
July 1, 1994. Due to past due 1993 and 1992 property taxes, an allowance for
possible loss was established for this loan during 1993. Interest payments on
the loan as well as the FMB were current through June 1994. As a result of the
bankruptcy, this loan remains outstanding.
On November 10, 1994, an Order Modifying Stay together with a Settlement
Stipulation was entered by the Court which grants the Partnership relief from
the Automatic Stay. This order becomes effective on March 31, 1995 unless a sale
of the property, subject to the Partnership's approval, is closed beforehand. If
a sale is not consumated, the title of the property will be transferred to the
Partnership or its designee in accordance with the terms set forth in the
Settlement Stipulation. Pursuant to the terms of the Settlement Stipulation,
until such sale occurs or the deed is transferred on March 31, 1995, the
Partnerhship shall continue to receive the monthly net cash flow generated by
the property as payment toward debt service.
Thomas Lake, Eagan, Minnesota
Pursuant to the terms of a forbearance agreement entered into in 1991, debt
service payments were made at a rate of 7.75% per annum for the nine months
ended September 30, 1994. The minimum pay rate is scheduled to increase in
annual increments to the original stated rate of 8.5% as of December 1996. The
difference between the rate paid and the original stated rate is payable out of
available future cash flow or, ultimately, from sales or refinancing proceeds.
The property also paid deferred base interest for the nine months ended
September 30, 1994 in the amount of approximately $51,000. In May 1992, Summit
Tax Exempt Funding Corp., an affiliate of the Partnership, made a loan in the
amount of $220,000 secured by a second mortgage on the property toward the
payment of past due property taxes. In January 1993, this loan was assigned to
the Partnership as part of the transaction in which the Partnership obtained a
new credit facility. The loan requires interest only payments at the Citibank,
N.A. prime rate (7.75% at September 30, 1994) plus 2.0% per annum, payable
monthly. Principal is due in full on April 15, 1995. Interest on this loan is
current.
North Glen, Atlanta, Georgia
Pursuant to the terms of a forbearance agreement entered into in 1991,
interest payments to the Partnership were scheduled to return to the stated rate
of 8.5% per annum in 1993. Due to continuing soft market conditions, the General
Partners entered into an extension of the forbearance agreement in April 1993
which allows the owner to make debt service payments at a minimum pay rate equal
to 6.0% per annum through December 1995 at which time the rate is scheduled to
increase to the original stated rate of 8.5%. The difference between the rate
paid and the stated rate is payable out of available future cash flow or,
ultimately, from sales or refinancing proceeds.
In April 1993, the Partnership made a loan in the amount of $126,000 to the
owner of the property underlying the FMB for payment of past due property taxes.
This loan requires interest only payments at 8.5% per annum, payable monthly,
with the principal due on April 30, 1996. Due to the extension of the
forbearance agreement in 1993, an allowance for possible loss was established
for this loan; however, interest payments on this loan are current.
Greenway Manor, St. Louis, Missouri
Due to the failure to pay 1990 and 1991 property taxes and interest from
March to August 1992, the Partnership instituted foreclosure proceedings against
Greenway Manor. On July 20, 1992, the Greenway Manor partnership filed for
bankruptcy under Chapter 11 of the United States Bankruptcy Code. Pursuant to a
1992 court order, the receiver paid the Partnership the cash flow remaining
after paying the past due real estate taxes, property operating costs and
escrowing for the then current year's real estate taxes. On June 30, 1993, the
court dismissed the bankruptcy proceeding at which time the owner of the
property and obligor of the FMB agreed to transfer the deed-in-lieu of
foreclosure to an affiliate of the Related General Partner who has not made an
equity investment. Interest payments to the Partnership for the nine months
ended September 30, 1994 and 1993 were paid at annualized rates of 7.6% and
6.5%, respectively. Although this property is not producing sufficient cash flow
to fully service the debt, the Partnership has no present intention to declare
default on this FMB.
Sunset Terrace, Lancaster, California
Pursuant to the terms of a forbearance agreement entered into in 1992, the
property began paying debt service at 7.0% in May 1992 which increased to 7.25%
in May 1993 and 7.5% in May 1994. The rate paid is scheduled to further increase
in annual increments to the original stated rate of 8.0% as of May 1996. The
12
<PAGE>
<PAGE>
difference between the rate paid and the stated rate is payable from available
future cash flow or ultimately from sales or refinancing proceeds.
General
The determination as to whether it is in the best interest of the Partnership
to enter into forbearance agreements relating to the FMBs or, alternatively, to
pursue its remedies under the loan documents, including foreclosure, is based
upon several factors including, but not limited to, property performance, owner
co-operation and projected legal costs.
The difference between the stated interest rates and the rates paid by the
FMBs is not accrued as interest income for financial reporting purposes. The
accrual of interest at the stated interest rate will resume once a property's
ability to pay the stated interest rate has been adequately demonstrated.
Interest income of approximately $971,000 and $514,000 was not recognized for
the nine months ended September 30, 1994 and 1993, respectively.
From time to time, certain property owners have elected to supplement the
cash flow generated by the properties to meet the required bond interest
payments. There can be no assurance that in the future any property owner will
elect to supplement property cash flow to satisfy bond interest requirements if
necessary.
13
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--Incorporated by reference to Note E to the financial
statements filed herewith in Item 1 of Part I of the Registrant's
Quarterly Report.
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--On October 21, 1993, an affiliate of Prudential-Bache
Properties, Inc., Prudential Securities Incorporated (``PSI''), settled,
without admitting or denying the allegations contained therein, civil
and administrative proceedings with the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., and
various state regulators. These proceedings concerned, among other
things, the sale by PSI of limited partnership interests, including
interests of the Registrant, during the period 1980 through 1990. The
settlement has no impact on the Registrant itself.
On October 27, 1994, PSI entered into cooperation and deferred
prosecution agreements (the ``Agreements'') with the Office of the
United States Attorney for the Southern District of New York (the ``U.S.
Attorney''). The Agreements resolved a grand jury investigation that had
been conducted by the U.S. Attorney into PSI's sale during the 1980's of
the Prudential-Bache Energy Income Fund oil and gas limited partnerships
(the ``Income Funds''). In connection with the Agreements, the U.S.
Attorney filed a complaint charging PSI with a criminal violation of the
securities laws. In its request for a deferred prosecution, PSI
acknowledged to having made certain misstatements in connection with the
sale of the Income Funds. Pursuant to the Agreements, the U.S. Attorney
will defer any prosecution of the charge in the complaint for a period
of three years, provided that PSI complies with certain conditions
during the three year period. These include conditions that PSI not
violate any criminal laws; that PSI contribute an additional $330
million to a pre-existing settlement fund; that PSI cooperate with the
government in any future inquiries; and that PSI comply with various
compliance-related provisions. If, at the end of the three-year period,
PSI has complied with the terms of the Agreements, the U.S. Attorney
will be barred from prosecuting PSI on the charges set forth in the
complaint. If, on the other hand, during the course of the three-year
period, PSI violates the terms of the Agreements, the U.S. Attorney can
elect to pursue such charges.
Item 6. Exhibits and Reports on Form 8-K--
(a) Exhibits:
4(a)--Partnership Agreement, incorporated by reference to Exhibit A
to the Prospectus of Registrant, dated February 19, 1986, filed
pursuant to Rule 424(b) under the Securities Act of 1933, File No.
33-2421.
4(b)--Amended and Restated Certificate of Limited Partnership,
incorporated by reference to Exhibit 4 to Registration Statement on
Form S-11, File No. 33-2421.
27--Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K--Registrant's Current Report on Form 8-K dated
July 15, 1994, as filed with the Securities and Exchange Commission
on August 1, 1994, relating to Item 5 regarding the bankruptcy of
the owner of the Cypress Run property in Tampa, FL which secures the
Partnership's $15,750,000 FMB.
14
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Summit Tax Exempt Bond Fund, L.P.
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ Robert J. Alexander Date: November 11, 1994
----------------------------------------
Robert J. Alexander
Vice President
Chief Accounting Officer for the
Registrant
By: Related Tax Exempt Bond Associates, Inc.
A Delaware corporation, General Partner
By: /s/ Alan P. Hirmes Date: November 11, 1994
----------------------------------------
Alan P. Hirmes
Vice President
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Summit Tax Exempt Bond Fund, L.P.
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000786156
<NAME> Summit Tax Exempt Bond Fund, L.P.
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-START> Jan-01-1994
<PERIOD-END> Sep-30-1994
<PERIOD-TYPE> 9-MOS
<CASH> 132,655
<SECURITIES> 131,582,239
<RECEIVABLES> 10,324,936
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 142,039,830
<CURRENT-LIABILITIES> 15,665,340
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 126,374,490
<TOTAL-LIABILITY-AND-EQUITY> 142,039,830
<SALES> 7,463,340
<TOTAL-REVENUES> 7,463,340
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,252,118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 832,203
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,379,019
<EPS-PRIMARY> .67
<EPS-DILUTED> 0
</TABLE>
